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What's in Store for Palo Alto (PANW) This Earnings Season?

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Palo Alto Networks (PANW - Free Report) is scheduled to release first-quarter fiscal 2021 results on Nov 16.

The company expects year-over-year revenue growth of 19-20% to $915-$925 million. The Zacks Consensus Estimate for the same is pegged at $920.7 million, suggesting a 19.3% increase from the year-ago quarter.

The company anticipates non-GAAP earnings in the band of $1.32-$1.35. The consensus mark for the same is pegged at $1.34, indicating a year-over-year climb of 27.6%.

The company’s earnings beat estimates in all of the trailing four quarters, the average surprise being 10.8%.

Let’s see how things have shaped up for the announcement.

Factors at Play

Palo Alto’s fiscal first-quarter results are likely to have benefited from increased demand for cybersecurity solutions driven by remote working trend amid the COVID-19 pandemic. Moreover, the company’s earnings are likely to have been aided by the strong momentum for deal wins, which, in turn, is likely to have boosted revenue growth.

Palo Alto is also gaining from the acquisition of Redlock, which forms the basis of the Prisma public cloud, and Demisto, which forms the basis of Cortex. Prisma and Cortex are likely to have performed well during the fiscal first quarter, which is a positive for billings.

The growing and accelerated migration to cloud, owing to the social-distancing regulations, is likely to have boosted the adoption of the aforementioned platforms. Notably, the company expects year-over-year billings growth between 15% and 17% ($1.03 billion-$1.05 billion) during the to-be-reported quarter.

Furthermore, FedRAMP recognitions are boosting the adoption of Palo Alto’s products by government organizations. In March, the company announced that its IoT product — ZingboxIoT Guardian — has been deemed “In Process” for the Federal Risk and Authorization Management Program (FedRAMP).

This FedRAMP recognition reflects the trust the U.S. public sector puts in Palo Alto’s IoT security solutions. Further, the Prisma Cloud’s “In Process” status is boosting the visibility of the company’s products to government organizations. This is likely to have encouraged the adoption of its products during the period in discussion.

Nonetheless, higher sales incentives related to the Next-Generation Security products are likely to have hurt the company’s bottom-line performance. Additionally, forex headwinds, and higher marketing and sales expenses might have weighed on fiscal first-quarter profitability. Moreover, high acquisition related expenses are expected to have dragged down margins.

What Our Model Says

Our proven model does not predict an earnings beat for Palo Alto this season. The combination of a positive Earnings ESP, and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Palo Alto currently carries a Zacks Rank of 4 (Sell) and has an Earnings ESP of 0.00%.

Stocks With Favorable Combinations

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat this quarter:

Spectrum Brands Holdings Inc. (SPB - Free Report) has an Earnings ESP of +9.24% and carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corporation (NVDA - Free Report) has an Earnings ESP of +1.75% and carries a Zacks Rank of 2, currently.

Workday Inc. (WDAY - Free Report) has an Earnings ESP of +3.73% and currently holds a Zacks Rank of 3.

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